This Could be a Dangerous Pattern

Sometimes, people forget the link between banks and the economy. Many potential
borrowers are complaining about "the hundred hoops" banks are making them jump
through in applying for a loan ... only to be turned down in the end.

I've heard enough stories to thing that banks are being tight fisted and holding
back due to concern about risk. That's the link between banks and the economy
... holding back, so money is not going back into the economy.

Usage expansion of credit cards is of short term benefit unless longer term
loans are also in an expansion scheme. The Fed is concerned about making cheap
money available to banks while seeing little action that puts the money back
to work in the economy.

In spite of the progress the Banking Index has made since this Summer, it
could run into trouble now, and today's chart show's why.

This Banking Index chart as of 10 AM on October 8th. ...

Today's chart study explore's the action of a 30 day Relative Strength setting
versus the action of the Banking Index itself.

At the bottom left of the chart below (early 2011), you will see how there
was a Negative Divergence on the C-RSI. To create this, the Banking Index went up,
but the Relative Strength went down. This occurred while the C-RSI was in
a triangular pattern ... and when the C-RSI dropped below the triangle's
support after having a Negative Divergence, the Banking Index then fell until
September.

Why are we mentioning this pattern now?

Because if you look at the right hand side of the chart, we could be facing
the same kind of possibility now.

Note that the C-RSI is showing a definite Negative Divergence and a triangular
pattern just like it did over a year and a half ago. The only difference right
now, is the action of the Banking Index.

Previously, the Index went up (higher) to form a stronger Negative
Divergence, and this time the index went essentially sideways. So, we
have a lot of the conditions that existed before, but not quite to the same
degree yet.

In any case, it is a pattern that should be watched, and will be concerning
until it is resolved by an upside breakout on the C-RSI, or a failure to the
downside. Please also see the second chart which is a close up clearly
showing the current triangular pattern and Negative Divergence.

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed
his own proprietary analytical tools and stock market models. As a result,
he was out of the market two weeks before the 1987 Crash in the most recent
Bear Market he faxed his Members in March 2000 telling them all to SELL. He
is an advanced technical analyst and not an investment advisor, nor a securities
broker.

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